In 1923, scientists and sociologists had many predictions on how life would look 100 years later in 2023. While it would seem we’re still a century or 2 away from flying cars and 4-hour workdays, the foresight of a longer life expectancy was on the mark, albeit not in the region of the 100-year lifespan.
Stats SA has confirmed that there has been a significant increase in the Ageing Index, which means that South Africa’s elderly population has been growing over time. The Ageing Index refers to the number of elderly people (aged 60 years and over) per 100 individuals younger than 15 in a specific population. So, the higher the index, the older the population. The ageing index in South Africa has increased from 30 in 2017 to 33 in 2022, according to Stats SA.
As the population landscape of senior citizens continues to change, the case for retirement planning becomes even more prudent. However, South Africa has a widened savings gap, as 90% of South Africans do not have enough saved for retirement and will most probably have to work during their golden years.
The recently released NedFinHealth Monitor found that 68% of South Africans do not have any retirement savings apart from what is provided through their employer. The Monitor also found that 65% of South Africans do not have retirement annuities, 47% of South Africans are not confident that they will have enough money to live comfortably throughout their retirement years and 54% of South Africans expect to receive inadequate retirement income from all their retirement savings.
It’s never too late.
For individuals over 55 who are steadily approaching retirement but have not accumulated enough savings to see them through it, feelings of despondency that it may be too late to start and anxiety about the future may get in the way of optimising on the remaining years of their working lives.
The truth is, if you’re between 55 and 64, you still have time to boost your retirement savings. An early start in saving for retirement is always preferred but the last 10 years before you retire can be especially crucial.
At this stage in one’s life, one should have a decent vision of what one’s needs will be after retirement and be able to make adjustments if needed to see that vision through. Putting away savings can make all the difference – not only financially but also psychologically.
Retirement planning for individuals over 55
For the average South African over 55, the likelihood of difficulty to make ends meet during the retirement years is very high if a swift move is not made to accumulate savings. Some of the realities faced by people in this age group is that they haven’t accumulated sufficient savings because of life circumstances, or have cashed their pension or provident funds over the years when they changed jobs.
Therefore, putting a retirement plan in place cannot be delayed. Some of the important considerations you need to make during the planning process include the following:
· Have a clear, realistic vision of how you would like your finances to look in your retirement years.
· Conduct an honest introspection of your financial status by knowing how much savings you currently have.
· Know your level of debt and put a plan in place to reduce or pay it off.
· Increase your contribution to the company pension fund.
· Consider adding a retirement annuity to supplement your retirement savings.
· Consult an accredited financial planner to help you make the right savings decisions for your retirement.
Retirement planning for self-employed individuals
There is also a significant number of South Africans in the 55+ age bracket who are entrepreneurs or are self-employed and may not have a corporate pension fund to contribute towards.
For this segment of the market, a little more work must be done over and above retirement planning. One needs to plan very carefully for the continuity of their business as they approach retirement age. Various options can be considered, including putting in place a succession plan that will see a younger member of the family being trained to take over the reigns or sale of the business and investing the funds towards retirement savings. Consulting an accredited financial planner is crucial, as they will be able to conduct a comprehensive audit of your business and finances and then advise you on the most suitable savings products to cushion your retirement.
Managing money during retirement
Being financially savvy does not stop when you are retired. Making wise financial decisions and managing your money efficiently during retirement can protect your financial health and ensure you don’t have to un-retire back into the job market.
It is important to continue your relationship with an accredited financial planner to help you plan and manage your income, daily expenses and investments. Some of the key financial management considerations to make include the following:
· Avoid acquiring new debt in your retirement years.
· Manage and spend your money wisely to ensure the longevity of your savings.
· Downgrade your transactional account to a more efficient bank account because you will likely transact less frequently.
· Invest in hobbies and physical activities to safeguard your health as medical expenses are one of the major expenditures during retirement.
· Avoid long-term investments.
· Consider investing in shorter term investment products such as fixed deposit accounts or Money Market.
· Make sure you’re benefitting from senior citizens benefits on your tax return through the help of a financial planner.
Daunting, but must be done
Saving can be daunting given the reality that most times our expenses exceed our income, and that the rising cost of living reduces our ability to put money away for the future. It is particularly stressful when you start to save later in life. But taking stock of your current situation and putting in place an immediate, realistic plan to see you through your golden years will have a positive effect on your peace of mind and future financial health.
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By Vanesha Palani: Executive for Financial Management at Nedbank
